Question 1

For tax purposes, a statutory employee is treated the same way as a common law employee.

Accepted Answer

A statutory employee has a tax status that combines aspects of both employee and independent contractor. Unlike common law employees, statutory employees can deduct work-related expenses directly from their income on Schedule C, rather than as itemized deductions.

Question 2

In choosing between the actual expense method and the automatic mileage method, a taxpayer should consider the cost of insurance on the automobile.

Accepted Answer

When deciding between the actual expense method and the standard mileage rate for deducting automobile expenses, the cost of insurance is one of the actual expenses to be considered, as it can significantly impact the total expense calculation.

Question 3

A self-employed taxpayer who uses the automatic mileage method to compute auto expenses can also deduct the business portion of automobile club dues.

Accepted Answer

Using the standard mileage rate to calculate auto expenses for business purposes includes all costs associated with operating the vehicle, such as maintenance and insurance, thus excluding the deduction of additional expenses like automobile club dues.

Question 4

Carol is self-employed and uses her automobile solely for her business.If she uses the actual expense method to compute expenses, she can include any interest paid on the loan taken out to purchase the car.

Accepted Answer

Interest paid on a car loan used for business purposes is considered a deductible expense when using the actual expense method to compute expenses.

Question 5

One indicator of independent contractor (rather than employee) status is when the individual performing the services is paid based on time spent (rather than on tasks performed).

Accepted Answer

This statement is incorrect. The method of payment, whether based on time or tasks, is just one factor considered in determining independent contractor status. Other factors, such as level of control and ownership of tools/equipment, must also be evaluated.

Question 6

If an individual is subject to the direction or control of another only to the extent of the end result but not as to the means of accomplishment, an employer-employee relationship does not exist.

Accepted Answer

This is known as the "result-oriented" test and is used to determine whether someone is an independent contractor or an employee. If the individual has control over the means by which the end result is achieved, they are likely an independent contractor rather than an employee.

Question 7

A taxpayer who uses the automatic mileage method to compute auto expenses can also deduct the business portion of tolls and parking.

Accepted Answer

The business portion of tolls and parking can be deducted in addition to the automatic mileage method for computing auto expenses.

Question 8

Jake performs services for Maude.If Maude provides a helper and tools, this is indicative of independent contractor
(rather than employee) status.

Accepted Answer

If Maude provides a helper and tools, it suggests a greater degree of control over the work being done, which is indicative of an employer-employee relationship rather than an independent contractor relationship. In an independent contractor relationship, the contractor would typically supply their own tools and helpers.

Question 9

Under the automatic mileage method, depreciation is not taken into account in the mileage rate allowed.

Accepted Answer

The standard mileage rate, often referred to as the automatic mileage method for calculating vehicle expenses for business use, includes an allowance for depreciation. This rate is designed to cover all the costs associated with operating a vehicle, including depreciation, fuel, maintenance, and insurance.

Question 10

After the automatic mileage rate has been set by the IRS for a year, it cannot later be changed by the IRS.

Accepted Answer

The mileage rate can be changed by the IRS during the year if they deem it necessary. However, once the year has ended and the rate has been set, it cannot be changed retrospectively.

Question 11

A deduction for parking and other traffic violations incurred during business use of an automobile is allowed under the actual cost method but not the automatic mileage method.

Accepted Answer

Neither the actual cost method nor the automatic mileage method allows deductions for parking and other traffic violations. These costs are considered personal expenses and are not deductible for tax purposes.

Question 12

The IRS will issue advanced rulings as to whether a worker's status is that of an employee or an independent contractor.

Accepted Answer

The IRS can issue advanced rulings regarding a worker's classification as an employee or independent contractor through Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding. These rulings are not binding, but can provide guidance on the worker's classification for tax purposes.

Question 13

Once the actual cost method is used, a taxpayer cannot change to the automatic mileage method in a later year.

Accepted Answer

A taxpayer can switch from the actual cost method to the standard mileage rate method in a later year, but not the other way around. Once the actual cost method is chosen, it cannot be changed for that specific vehicle.

Question 14

Janet works at Green Company's call center.If Janet's compensation is based on the number of calls she handles, she is an independent contractor.

Accepted Answer

Janet's compensation being based on the number of calls she handles does not automatically make her an independent contractor. The determination of independent contractor status depends on various factors, including the degree of control the company has over her work and how integral her work is to the business, not just on how she is paid.

Question 15

A taxpayer who maintains an office in the home to conduct his only business will not have nondeductible commuting expenses.

Accepted Answer

Since the taxpayer's home office is their only place of business, they will not have any commuting expenses, which are generally nondeductible.

Question 16

In some cases, it may be appropriate for a taxpayer to deduct work-related expenses as both a sole proprietor and an employee.

Accepted Answer

The answer of In some cases, it may be appropriate...

Question 17

A statutory employee is not a common law employee but is subject to Social Security tax.

Accepted Answer

A statutory employee is a type of worker who is considered an independent contractor for income tax purposes but is treated as an employee for Social Security and Medicare tax purposes. Therefore, they are subject to Social Security tax.

Question 18

A taxpayer who uses the automatic mileage method for the business use of an automobile can change to the actual cost method in a later year.

Accepted Answer

According to IRS regulations, a taxpayer can switch from the automatic mileage method to the actual cost method or vice versa in a later tax year, but once the actual cost method has been used for a vehicle, it cannot be switched back to the standard mileage rate method.

Question 19

The work-related expenses of an independent contractor are treated as itemized deductions.

Accepted Answer

The work-related expenses of an independent contractor are not treated as itemized deductions; instead, they are deducted directly from their business income on Schedule C (Form 1040) to calculate their net business income.

Question 20

For tax purposes, travel is a broader classification than transportation.

Accepted Answer

Travel expenses can include transportation costs, as well as lodging, meals, and other expenses incurred while away on business.

Quiz 9: Deductions: Employee and Self-Employed-Related Expenses